The Blog

Franco-German Clash Over EADS Comes To An End--For Now

11:33 AM, Jul 23, 2007 • By ULF GARTZKE
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

0,1020,820561,00.jpgThomas Enders (left) and Louis Gallois. (DPA)

As we predicted back in May, the power struggle between Paris and Berlin over the restructuring at aerospace and defense company EADS has become a first crucial test of the Franco-German relationship in the wake of Nicolas Sarkozy's election. In essence, the fight over control at EADS is about securing jobs, preserving key technological capabilities, and national prestige.

On Monday last week, following months of political wrangling, Sarkozy and Merkel met at the headquarters of Airbus (Boeing's arch rival is 100 percent controlled by EADS) in Toulouse to announce a grand bargain designed to calm the waters, streamline EADS's cumbersome management structure, and allow the company to go back to business. Starting October 1, Frenchman Louis Gallois, now the Co-CEO of EADS as well as the CEO of Airbus, will become the sole chief executive of EADS. His current German counterpart, Tom Enders, will take over as CEO of Airbus, by far the biggest and most important EADS division. At the same time, Ruediger Grube, a top German executive at key EADS shareholder DaimlerChrysler, will take over as the sole EADS supervisory board chairman (a position that is now shared with a Frenchman).

Merkel coolly described the Franco-German compromise--which needs to be approved at an EADS shareholders meeting later this year--as "balanced, fair and economically sensible." The first reaction of other German political leaders, newspaper commentators, and industry analysts was to hail the deal as a welcome step towards strengthening the position of Germany in EADS. As one commentator put it, Tom Enders and Ruediger Grube can now "squeeze" EADS CEO Gallois, who will be sandwiched between the two German executives. In France, the EADS deal was also seen as welcome news, particularly because Louis Gallois will take over as the sole CEO of EADS. Just a week earlier, alarm bells had gone off in Paris amid growing speculation that DaimlerChrysler had managed to secure the EADS CEO post for Tom Enders. Such an outcome would have been the worst case scenario for Sarkozy, whose government directly controls 15 percent of EADS and which is still eager to sideline Tom Enders because of the German manager's outspoken opposition to any political interference by Paris in the management affairs of EADS.

In principle, the fact that both the French and the German side welcomed the Toulouse deal could be seen as proof that a fair and balanced EADS compromise has finally been found. However, as so often is the case, the devil is in the details. Late last week, the Financial Times Deutschland reported that Louis Gallois will be able to nominate the four new independent members of the EADS supervisory board "in cooperation with" chairman Ruediger Grube. So far, this important element of the Toulouse deal had not been made public. Initially, the addition of outside directors was seen as another step towards making EADS a more "normal" company. However, in a "normal" company, the German chairman Ruediger Grube alone would have the privilege of nominating his fellow board members.